Arkansas Best Corporation (NASDAQ:ABFS) reported its Q3 2013 earnings yesterday. The trucking company’s stock is up over 300% in the past year. Earlier this year, the American Trucking Association released its  U.S. Freight Forecast to 2024, which projects an overall increase in freight volumes of more than 20% and an increase in the amount of that freight moved by trucks.

Ark-Best

ABFS stock is up over 300% in the last year. Get our Fundamental Analysis to see if the company’s returns are sustainable.

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ABFS operates as a holding company that provides freight transportation services and solutions. The company operates through the following segments: Freight Transportation, Premium Logistics & Expedited Freight Services, Truck Brokerage & Management, Emergency & Preventative Maintenance and Household Goods Moving Services. Based on the preliminary financial result results we analyze the company relative to its peers (see the end of this post for the peer set used). Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2013-09-30 2013-06-30 2013-03-31 2012-12-31 2012-09-30
Revenues 623.4 576.9 520.7 537.0 577.5
Revenue Growth % 8.1 10.8 (3.0) (7.0) 13.1
Net Income 13.4 4.7 (13.4) (7.9) 6.5
Net Income Growth % 187.3 N/A N/A (221.6) (45.0)
Net Margin % 2.1 0.8 (2.6) (1.5) 1.1
ROE % (Annualized) 10.9 4.0 (11.9) (6.8) 5.6
ROA % (Annualized) 5.2 1.8 (5.3) (3.0) 2.4

Valuation Drivers

Arkansas Best Corporation’s current Price/Book of 1.6 is about average in its peer group. ABFS’s PE multiple is negative now so EBITDA ratios provide better peer comparisons. ABFS’s share price implies higher growth than its peer group average (Price to Ebitda multiple of 9.5 compared to peer average of 6.6). The market also seems to expect a turnaround in ABFS’s relatively low current EBITDA return on equity of 17.2%.

The company’s profit margins are below peer average (currently -0.1% vs. peer average of 3.7%) while its asset efficiency is about average (asset turns of 2.1x compared to peer average of 2.0x). ABFS’s net margin is greater than (but within one standard deviation of) its five-year average net margin of -1.8%.

Growth & Investment Strategy

While Arkansas Best Corporation (NASDAQ:ABFS)’s revenues growth has been around the peer average in recent years (11.9% vs. 11.9% respectively for the past three years), the market gives its shares a higher than peer average Price/EBITDA ratio of 9.5 (Note: We use Price/EBITDA instead of PE due to negative earnings). The market seems to see faster growth ahead.

ABFS’s annualized rate of change in capital of 5.2% over the past three years is less than its peer average of 6.9%. This below average investment level has also generated a less than peer average return on capital of -2.1% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

Arkansas Best Corporation (NASDAQ:ABFS) reported relatively weak net income margins for the last twelve months (-0.1% vs. peer average of 3.7%). However, the company booked a level of accruals that is around peer average (4.7% vs. peer average of 4.4%) for the same period, suggesting that its reported net income is supported by a reasonable level of accruals.

ABFS’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer average and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts for ABFS

ABFS Arkansas Best Corporation Revenues TrendABFS Arkansas Best Corporation Net Margin TrendABFS Accruals Trend

Peers Used for ABFS Earnings Analysis

We used the following peer-set: J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Old Dominion Freight Line (NASDAQ:ODFL), Con-way Inc (NYSE:CNW), Roadrunner Transportation Systems Inc (NYSE:RRTS), Universal Truckload Services, Inc. (NASDAQ:UACL), Saia Inc (NASDAQ:SAIA), Celadon Group, Inc. (NYSE:CGI) and YRC Worldwide, Inc. (NASDAQ:YRCW).

ABFS stock is up over 300% in the last year. Download our Fundamental Analysis to see if the company’s returns are sustainable.

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Disclaimer

Via: capitalcube